When you see outsized gains on any given stock, you can draw a conclusion about what that company might be doing right. But when you see huge outperformance from four stocks on a given day, you can discern what the market loves, not just what the companies might be doing right.
That's the takeaway from comments made by Dividend Stock Advisor portfolio holding General Electric (GE), Honeywell (HON) and CVS Health (CVS), as well as the quarterly report of Federal Express (FDX), all of which saw their stocks fly because of these statements, and not just the crutch of a smarter-than-the-average bear Federal Reserve.
First, make no mistake about it, despite the rosy nature of the Fed's comments about good growth in the economy, GE, Honeywell and FedEx all pointed out how the world's growth is intermittent at best and downright disconcerting on a day-to-day basis. Only CVS, totally domestic, obviously didn't need to focus on international weakness, and its stock rallied in part because its business is very anti-cyclical, a huge win in this environment.
Second, you aren't getting gigantic upside surprises from these companies vs. expectations. GE, Honeywell and CVS simply affirmed what people were looking for in 2016, raising range midpoints or hammering home that despite worldwide weakness, unlike so many other companies, they saw no need to guide down. FedEx, the only one of the four that actually reported, beat the quarter, but it didn't increase next year's estimates.
The chief reason why FedEx went up, I believe, was because it was somewhat downbeat in comments at the end of October. It under-promised on pricing and then over-delivered with some excellent cost controls and very strong on-the-ground business, with a 9% increase in volume and a 10% increase in pricing. Again, though, FedEx was simply affirming its overall earnings, despite a challenged economy, while acknowledging that it's been a huge beneficiary of e-commerce.
I regard GE's move to multi-year highs after its analyst day as more of a coronation than a revelation. You are now seeing the real GE sans finance, and it is a beautiful thing to behold, with organic growth of 2-4% despite many mentions of slow worldwide growth. The company is returning a huge amount of capital to shareholders because, again, of excellent cost controls and gigantic free cash flow. Lots of people are skeptical when GE talks about being the "digital industrial," but you don't get that kind of growth without hardcore manufacturing innovation. I think that people were generally thrilled to hear that despite the step down in the U.S. economy in the last quarter, GE's affirming what it said it could do when it reported last. That's a win in this environment.
Finally, Honeywell's stock performance is the most quizzical of all four of these companies. The comments from CEO Dave Cote at its analyst day were very cautious about the economy. But the fact that Honeywell reiterated that it saw organic growth of 1-2% was greeted with a spectacular response, the biggest one-day gain in three years.
Why quizzical? First, the organic growth rate is about half of GE's, although that is somewhat reflected in the 23x price to earnings multiple of GE versus 17x for Honeywell. Who would have believed that switch could happen so fast? GE carried a lower multiple for years vs. Honeywell.
Second, Honeywell simply raised the midpoint, and didn't tell you to take the overall earnings up for 2016. However, once again, amazing cost controls and some incredibly additive acquisitions gave you total confidence that Honeywell's in charge of its own destiny, which is all you could ask for in this environment.
And that brings me to the real conclusion of what people want to hear from companies: they want some autonomy from the world's slowdown and a sense that they can triumph over a strong dollar and overall weakness in China -- although Honeywell reiterated that it's a great growth market for its automated controls division -- and over a level of gloom that doesn't match the Fed's actions.
All in all, CVS, FedEx, GE and Honeywell are applauded simply for doing what they've been doing: putting out good numbers, which, in this day in age, makes them part of an elite company that's delivering no matter what. Now I wish that even a few more companies could say that. But I don't believe many that can or will as we go as we go into this new and, by all accounts, tough, 2016.